Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) on
The agency has also affirmed
The affirmation reflects TPG's 'Strong' financial performance, 'Good' capitalisation and 'Most Favourable' company profile. We view TPL as 'Core' and TPRe as 'Very Important' to TPG under Fitch's group rating methodology. TPL's rating is based on the credit profile of TPG as a whole, and TPRe's rating reflects its standalone credit quality.
Key Rating Drivers
Rating Uplift on Government Linkage: TPG's rating benefits from a two-notch uplift from its standalone credit quality, reflecting the stakes held by
'Good' Capital Adequacy: We expect TPG's capital buffer under the Fitch Prism Model to widen by end-2023, driven by a contractual service margin (CSM) after tax was included as available capital after the group's implementation of IFRS 17 on
The comprehensive solvency ratio improved to 205% by end-1H23, from 190% at end-2022, with the core solvency ratio rising to 114%, from 101%. The increase in the core solvency ratio was due mainly to
Solid Capitalisation at TPRe: The reinsurer's Prism Model score is likely to be stronger by end-2023 compared with the prior year-end due to a reduction in life reinsurance business, a portfolio restructuring with an increase in protection business, and the
Resilient Operating Results Under Challenge: Insurance revenue from TPG's life business remained flat in 1H23 against 1H22, while new business CSM improved by 9.4% yoy to
Unprofitable Underwriting at TPRe: We expect the reinsurer to report an underwriting loss for 2023 due to catastrophic events, including claims arising from the
Asset Risk Remains Key: We think TPG is unlikely to reduce its large holding of high-risk assets meaningfully in the near term, for better yield in light of the continued low interest rates in
The high exposure to equity-type assets makes TPL's earnings vulnerable to stock-market movement and increasing counterparty risks, although the retrospective risky-asset ratio under IFRS 17 would be lower after including CSM as equity capital. TPRe's risky-asset ratio remained stable at 62% at end-2022 (2021: 61%), commensurate with its rating. Lower exposure to equity investments was offset by higher holdings of non-investment-grade bonds. We expect TPRe to practise greater caution in managing asset risk, to reinforce its regulatory solvency position under the coming risk-based capital regime.
'Most Favourable' Company Profile: We assess TPG's business profile as 'Most Favourable' and corporate governance as 'Moderate/Favourable' compared with that of other insurers in
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A significant change in shareholding that results in the MoF losing its controlling interest in TPG and CTIH, or a downgrade of
Factors that could, individually or collectively, lead to lowering of the standalone credit quality:
TPG's Fitch Prism Model score weakens significantly on a sustained basis;
A sharp rise in TPL's risky-asset ratio;
Prolonged weakening in financial performance and earnings, including a sharp decline in TPL's new business value.
For TPRe:
Sustained deterioration in the Fitch Prism Model score;
Consistently weakening in financial performance, in terms of combined ratio and earnings.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of
Factors that could, individually or collectively, lead to raising of the standalone credit quality:
A significant improvement in TPG's Fitch Prism Model score and a persistent decrease in its consolidated financial leverage ratio;
The group's profitability improves for a prolonged period.
For TPRe:
A significant strengthening in the Fitch Prism Model score on a sustained basis;
A material improvement in profitability, including a consistent decline in the combined ratio.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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